US Stocks Lower As Financials Join Broad Market In Decline

AnnelenaLobb

U.S. stocks continued to trade lower late Friday as a week's worth of dire earnings reports was punctuated by even more grim economic reports.

Recently, the Dow Jones Industrial Average slid 115 points, or 1.4%, to 8034, led by a slide for multinational giants Procter & Gamble and Caterpillar. Also weighing on stocks for the session were data showing that the U.S. gross domestic product contracted at a 3.8% annual rate at the end of last year, better than the 5.5% rate that economists, on average, had expected.

As stocks crumpled late in 2008, much of the market's focus was on the damage at top Wall Street banks. But a Friday report of contracting fourth-quarter GDP numbers punctuated a week packed with corporate reports and economic data that drew a clear picture of just how dire the fourth quarter was beyond those ailing financial institutions.

The U.S. economy atrophied in the fourth quarter as consumers and businesses cut spending, the housing slump deepened, and exports plunged. Evidence has been piling up that the economy remains in poor health. Reports on home sales, claims for jobless benefits and demand for manufactured goods this week were uniformly poor. A slew of top companies said that they're planning aggressive layoffs while posting losses or weaker earnings and warning of worse to come.

Those developments have left investors who exited stocks last year with little desire to put their money to work in the markets now, building a ceiling over any possible stock rallies.

"Smart investors are sitting on the sidelines," said David Henderson, president of Raven Securities Corporation. "There's not much conviction one way or the other. Believe it or not, it's impressive the market is hanging out at these levels."

Stocks were further damped after CNBC reported that a purported "bad-bank" plan from Washington had hit a big snag. Though CNBC delivered the same report late last night, the Dow lost nearly 60 points on the report, though the broad market had pared some off those losses recently.

Financial stocks, however, immediately sold off on the report, with the Financial Select Sector SPDR Fund off 1.6% recently after some morning gains. Citigroup was among the weakest, losing 6.7%.

News that the Obama administration was considering the creation of a possible "bad bank" to soak up toxic assets led to a rally Wednesday, but stocks gave back all of their gains Thursday.

"There's been too much back-and-forth, it's a wishy-washy market," said Debra Brede, president of D.K. Brede Investment Management Co. "One day you think [the government] is going to do something serious to help the banks, and the next day it's not such a great idea. Markets hate uncertainty, and it's not clear it's a good plan. We need to get these banks cleaned up and move forward."

The S&P 500 fell 1.9% to 829 as only energy stocks were in the green. The Nasdaq shed 1.6% to 1484, though Amazon.com, which said late on Thursday that a strong holiday season helped its earnings come out ahead of Wall Street expectations, was up 17%.

Among the slew of earnings reports, Dow component Procter & Gamble lost 5.3% after cutting its sales forecast for the year and reporting a 53% increase in earnings in its just-ended quarter.

Industrial stocks were also weak with Caterpillar warning it must drastically reduce production this year. Alcoa fell 6%, and Caterpillar fel1 3.5%. These stocks have plumbed new depths recently after repeated warnings from International Monetary Fund and others that global growth is going to slow to a "virtual standstill" in 2009.

Oil giant Exxon Mobil's fourth-quarter net fell 33% even as its annual results hit a new record. Rival Chevron posted a razor-thin profit for the fourth quarter. The two Dow components were up, thanks to a gain in oil prices.

"Without Exxon and Chevron, I think the Dow would be in serious trouble today," said Matthew Cheslock, managing director at Cohen Capital Group LLC. "We're at month-end, the Dow is down, and there's no ray of sunshine. We need to get expectations down - it's good for the market over the long term. Last quarter was horrible, this quarter will probably be horrible."

While stocks fell, gold and the U.S. dollar gained amid broader uncertainty. The euro fell more than one cent against the dollar, trading around $1.2802 from $1.2964 late Thursday. Gold added $19.50 to $926.

"The dollar seems to have some strength, but I think gold is telling the real story here," said Axel Merk, president and chief investment officer of Merk Investments. "People like no currency anymore," Merk said. Investors are "worried about what other governments may do to their currencies. Everyone wants to weaken their currencies to finance growth. There are depression fears spreading around the world."

Historically, stocks' performance in January has often foretold how well the market will perform in the remainder of the year. So far, 2009 is looking difficult. When the S&P falls in January, the index loses an average of 2.4% in the next 11 months, according to data going back to 1950 from Ned Davis Research. When the S&P rises in January, the index posts an average gain of 12.3% in the subsequent period.

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